Year in review: Foreign trade . Exporters see order books improving, but want more measures from govt

Turbulence in world trade caused by the Covid-19 pandemic since early 2020 cast its shadow over India’s trade prospects as well. The country’s exports and imports, since March, have suffered an overall decline (exports increased marginally only in September) as domestic manufacturing tried to grapple with the aftermath of the lockdown and a dip in global demand.

Tentative optimism about the future, however, seems to be dotting the landscape with many exporters stating that buyers, including new ones, have started approaching them with fresh queries and the order booking position has improved. At the same time, most maintain that timely help from the government, including prompt refunds, cheap credit, a vibrant incentive scheme replacing the older ones and a responsive foreign trade policy, is necessary to overcome the present downturn. “One of the reasons for fluctuations in India’s export performance has been the lack of consistency in industrial or manufacturing growth. We see some growth in manufacturing for a month or so and then we see a dip. Manufacturing needs to be made competitive by addressing the issue of cost of capital, land, labour, logistics cost,” pointed out exporters’ body Federation of Indian Exporters’ Organisation, in a pre-Budget consultation with the Finance Minister recently.

Export numbers

Total export for the period April-November 2020-21 was $173.66 billion which was 17.76 per cent lower than exports in the comparable period last year. Imports during the period were 33.5 per cent lower at $215.69 billion. On the positive side, the trade deficit was less than half at $42.03 billion in the first eight months of the on-going fiscal compared with $113.42 billion in the same period last year.

Although, in November, exports continued to decline posting a 8.74 per cent fall (year-on-year) to $23.52 billion, the silver lining could be the narrowing down of the decline in non-oil non-gold imports.

Commenting on the fall in goods exports in November, Engineering Export Promotion Council (EEPC) India Chairman Mahesh Desai said several critical export sectors, including engineering exports, were facing a host of issues, including disruptions in production, transportation, and increasing country-specific restrictions. “Under these circumstances, some of the doable things like easy refund of GST and ensuring availability of raw material at reasonable prices can provide much-needed relief to exporters,” he said.

Exporters have been complaining that refunds of GST have not been happening in a smooth way and a large part of the payment was locked in procedural hassles. Some raised the matter with the Commerce Ministry at the recent Board of Trade meeting and there are expectations that steps to address the concern may be taken soon.

Timely refund of GST could give some relief to exporters, many of whom are hit by a cash crunch due to inadequate credit, which is another problem that needs to be sorted out at the earliest.

The rising NPAs have led to a decline in export credit by banks to exporters resulting in liquidity problems in export efforts, exporters have pointed out to the government in recent consultations. They sought an early roll out of the NIRVIK Scheme, announced in September last year, so that it gives the necessary comfort to bankers to carry out lending activities.

Not adequate credit

Without adequate credit, most exporters, mainly those in the small and medium sector, will find it difficult to take up the additional orders that, exporters say, have started coming in. Since the new scheme NIRVIK, providing for high insurance cover, reduction in premium for small exporters and simplified procedures for claim settlement, is primarily aimed at higher export credit disbursement, the government should not delay it any further.

Another critical factor for export growth in the new year will be the new five-year foreign trade policy, likely to be rolled out in April, and the new duty reimbursement scheme Remission of Duties or Taxes on Export Products (RoDTEP) to be introduced.

The RoDTEP will replace the popular Merchandise Export from India Scheme (MEIS), which is a reward to exporters to offset infrastructural inefficiencies and associated costs extended at predetermined rates, is to be withdrawn from January 1, as it is not compatible with World Trade Organization rules. The RoDTEP, which is to reimburse all input duties paid by exporters, including embedded tax, that are not refunded under existing schemes, has to be as lucrative for exporters as the MEIS if additional woes are to be avoided.

The challenge for the government now will be to design the new Foreign Trade Policy in a way that it is able to provide the right climate to exporters to increase their business even without extending direct export sops. Extension of the Production Linked Incentive scheme to more sectors, removal of infrastructure bottlenecks, avoiding delays in shipments and refunds and examining ways for better coordination with States could be some aspects that the FTP may touch upon.

Much, however, depends on the resilience shown by the global economy in emerging out of the crisis in 2021, which, in turn, would determine growth in demand for exports. The effectiveness of the COVID-19 vaccine being rolled out in several countries will also be an important factor in how things shape up in the new year.

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